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Obamacare 101: How Business Owners Can Prepare in 2013

With the U.S. health reform law shifting into high gear next year, 2013 is a time of transition and preparation for businesses.

The heart of so-called Obamacare -- requirements that all Americans obtain health insurance and that carriers provide coverage regardless of preexisting medical conditions -- goes into effect in January 2014.

Businesses with the equivalent of 50 or more full-time employees may face fines if they don't provide full-time workers with affordable health insurance that meets certain standards.

Smaller companies with fewer than 50 employees, while not required to provide health insurance, need to inform employees about the law and make sure new healthcare plans (if they offer them) comply with Obamacare.

Small businesses have an opportunity in 2013 to sort out what will be required of them, and available to them, as of next year. That won't necessarily be an easy task: Businesses and others continue to await guidance and regulations on certain portions of the law, and details on the plans to be offered on new exchanges.

Based on current information, here are some key changes in the works, or newly in effect, when it comes to Obamacare:

Exchanges. New state-based health insurance exchanges, or marketplaces, should be in place by 2014, allowing small businesses and individuals to shop for coverage, choosing from a variety of competing plans that meet federal requirements. Employers are expected to have access to information about available exchange plans in October of this year.

Among the official preparations, the law requires large and small companies alike to inform employees in writing about the individual health insurance exchanges and the implications of participating in them. While the law originally set a March 1 deadline for employers to do so, the Department of Labor has yet to issue a model notice and recently delayed the requirement, according to BlueCross BlueShield of Illnois.

When it comes to group coverage, the law allows businesses with 100 or fewer employees to purchase health plans through the Small Business Health Options Program (SHOP) exchanges. Keep in mind, however: The law permits states to limit the small-group market to employers with 50 or fewer employees until 2016, and many are doing so, according to the Kaiser Family Foundation.

Small businesses also may opt to continue contracting with health insurers through the traditional marketplace. In either case, small-business premiums for new plans no longer will be based on employees' health status and can vary based only on workers' ages, smoking history and geographic region.

Employers with more than 100 workers -- those in the large-group market, which is subject to different regulations -- won't be able to use the exchanges before 2017, when states may open them to bigger businesses, said Jennifer Tolbert, Kaiser Family Foundation's director of state health reform.

Employers may find alternatives to the state-based exchanges in private exchanges run by third parties, including health insurers, experts note.

The Costs. The big question, of course, is how much the new requirements will cost small businesses. Businesses of at least 50 employees that weren't offering health insurance before can prepare for the biggest bite. That said, more than 90% of businesses with 51 or more workers already provided coverage in 2011, according to Kaiser's Employer Health Benefits Survey. In contrast, only 57% of businesses with 50 or fewer employees provided health benefits.

Critics say Obamacare will hurt business expansion and jobs growth, while advocates answer that many businesses actually will save money.

The National Federation of Independent Business, which unsuccessfully challenged Obamacare in the U.S. Supreme Court, contends, among other complaints, that the law will make it "extremely expensive" for an employer to cross the 50-worker threshold. A restaurant that grows from 49 to 50 employees could face a $40,000 penalty for not providing coverage, the group says.

"A business can avoid the penalties by firing employees, by not hiring new ones, by replacing full-timers with part-timers, or by outsourcing. Estimating the costs of hiring and expanding will be complex and confusing," NFIB says. The group also says businesses will spend resources on new administrative burdens.

An Urban Institute analysis last year, however, found that "the law leaves large businesses' costs per person largely untouched and reduces them for small businesses." Costs per person would be noticeably higher only among mid-sized businesses, the institute says, reflecting penalties for those not offering coverage.

The Obama administration says the SHOP exchanges will reduce the costs of enrolling employees in small-group plans and give business owners many cost advantages and choices that large businesses already enjoy, in part by spreading insurers' administrative costs across more employers.

The Main Street Alliance, a business group that advocated health reform, points to businesses and employees who will benefit, like a restaurant owner in Seattle who recently enrolled workers in health coverage for the first time because of the small-business tax credit and the prospect of more affordable plans becoming available on the exchange next year.

Size and Plan Requirements. The biggest job for small business owners in 2013 may simply be to determine the size of their workforces as defined by the Affordable Care Act. This is important because it can mean the difference between paying fines for failure to provide affordable health coverage and being exempt from such penalties.

Under the law, those employing 50 or more full-time workers or "full-time equivalent" employees may be fined at least $2,000 per employee -- excluding the first 30 workers -- as of 2014 for not providing affordable, qualifying health plans to employees averaging 30 or more hours per week, according to the Kaiser Family Foundation. They'll be subject to a penalty if they don't offer coverage and an employee qualifies for a tax credit or subsidy to help pay for an individual plan on an exchange or if they offer coverage that falls short of affordability regulations.

Businesses with fewer than 50 workers will be exempt from such penalties.

New plans offered to small businesses and individuals as of 2014 must provide a set of "essential health benefits," some of which are often excluded from such coverage now. While these may vary by state, essential benefits must include a number of specific services, including maternity and newborn care, emergency services, mental health and substance abuse services, preventive care and prescription drugs, according to Kaiser Family Foundation.

While any new plans must comply with Obamacare's requirements, businesses may grandfather their existing group health plans to sidestep many of the mandates. The requirements include: covering preventive services without employee cost-sharing; providing a set of essential health benefits; establishing an internal and external appeals process for coverage decisions; and allowing access to an OB/GYN without a referral, the foundation notes.

Tax Credits. Businesses with fewer than 25 full-time employees and average annual wages of less than $50,000 already are eligible for temporary tax credits if they do provide coverage. And the credits will increase next year, to a maximum of 50 percent of the employer's contribution to premiums for SHOP exchange plans from the current 35 percent for providing coverage..

There may be further considerations, too, as a result of individual tax credits. Under Obamacare, small businesses with fewer than 50 employees could provide group coverage purchased through exchanges or elsewhere if they choose, or direct workers to seek their own health insurance through the exchanges being set up for individuals to shop for plans. They can choose whether to contribute to coverage that employees purchase.

"I think there may be an interesting play right there for businesses and for their employees," said J. Sadler Hayes, a New City, N.Y., health insurance agent who works with individuals and small businesses.

Because the Affordable Care Act will provide tax credits and subsidies to help many individuals and families pay their premiums, based on income, small businesses with fewer than 50 employees might be able to save their workers money by sending them to the individual exchanges, he says.

Figuring out the best course may be difficult at this point because the exchanges are works in progress. (The exchanges will be either state-run, federally run, or operated jointly, depending on the state.)

"The plans aren't there yet. They're not up and running. We don't know what the benefits are, what the premiums are," Hayes said. He noted, however, that the Kaiser Family Foundation has posted a subsidy calculator that can help businesses make some assumptions. Individuals should be able to start enrolling through the exchanges around October of this year, Hayes said.

Other Moves. Some business owners have been considering moves that might keep their full-time workforces under 50, including splitting their businesses, cutting workers' hours or hiring subcontractors.

For those with at least 50 full-time employees, however, avoiding Obamacare's requirements may not be so easy.

On a recent webinar on Obamacare, for example, Bob Graboyes of the NFIB Research Foundation advised participants that entrepreneurs may not be able to avoid the large-employer fines by splitting their companies into smaller, separate businesses. Even an entrepreneur with completely separate companies may find his or her workforces combined for the purposes of the health law, he said.

Businesses with more than 50 employees may choose another route all together: Forgo coverage and pay the penalties instead. Business owners should check with accountants and other advisors, however, about whether the option makes sense.

Administrative requirements. The Affordable Care Act places a number of administrative requirements on employers, such as provisions newly in effect that businesses report on workers' W-2 forms the costs of company-sponsored health coverage for the previous year, and supply employees with a summary of benefits coverage.

Also as of this year, the law limits employee annual contributions to pretax health flexible spending arrangements, or FSAs, to $2,500, a figure that will be adjusted for inflation in subsequent years.

Because the law now requires small-group health plans to provide rebates if they fail to spend at least 80% of premiums on medical care and quality improvements rather than administrative costs and profits, employers may have to distribute rebates to employees, according to NFIB.